It has been about a month since the last earnings report for Affiliated Managers Group (AMG - Free Report) . Shares have lost about 4.1% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Affiliated Managers due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Affiliated Managers’ Q3 Earnings Beat Estimates, Costs Increase
Affiliated Managers’ third-quarter 2018 economic earnings of $3.45 per share outpaced the Zacks Consensus Estimate of $3.41. Also, earnings were up 1.2% year over year.
Rise in revenues and growth in AUM from the prior-year quarter benefited results. Also, liquidity position remained strong during the third quarter. However, higher operating expenses were the undermining factor.
Affiliated Managers’ economic net income was $184 million, witnessing a fall of 3.8% from the prior-year quarter.
Revenues & Expenses Rise
Total revenues grew 2.7% year over year to $601.3 million. However, the top line missed the Zacks Consensus Estimate of $607.4 million.
Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) were $237.8 million, down 7.2% from the year-ago quarter.
Total operating expenses increased 8.2% year over year to $421.6 million. The rise was mainly due to an increase in compensation and related expenses, and selling, general and administrative costs.
As of Sep 30, 2018, total AUM was $829.6 billion, up 3.2% year over year. The reported quarter also witnessed net client cash inflow of $0.9 billion.
Capital & Liquidity Position Decent
As of Sep 30, 2018, Affiliated Managers had $448.1 million in cash and cash equivalents compared with $439.5 million as of Dec 31, 2017. Notably, the company had $1.53 billion of senior bank debt, down nearly 1% from the Dec 31, 2017 level.
Shareholders’ equity as of Sep 30, 2018, was $3.62 billion, down from $3.82 billion as of Dec 31, 2017.
Share Repurchase Update
During the reported quarter, the company repurchased 0.8 million shares for $113 million.
Management expects adjusted EBITDA to average AUM to be 12.4 bps, assuming net performance fees of 40 cents per share as well as continued investment in product development and distribution capabilities.
Interest expenses are anticipated to be $19 million.
The company’s share of reported amortization and impairments are expected to be nearly $42 million.
Other economic items are expected to be approximately $1 million.
Adjusted weighted average share count is estimated to be 52.6 million mainly due to continuous share repurchases.
The company expects to repurchase nearly $100 million worth of shares.
While GAAP tax rate is expected to be 26%, cash tax rate will be affected by a one-time benefit of $20-$25 million and hence is forecasted at 19%.
Intangible-related deferred taxes (excluding the one-time item) are expected to be approximately $13 million.
Adjusted weighted average share count is expected to be 53.7 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.81% due to these changes.
Currently, Affiliated Managers has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Affiliated Managers has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.